1. Market analysts expect the earnings per share of JLC Ltd to be $3.00 next year. The company has typically retained 40% of its earnings and this policy is expected to continue in the forseeable future. The return required by investors on companies in JLC's risk class is 10% p.a. and JLC's shares are currently selling for $45.00 per share. Based on this information, the implied growth rate of JLC's dividends (and earnings) is closest to:
a) 3.3% p.a
b) 4.0% p.a
c) 6.0% p.a
d) 7.3% p.a
2. You have just settled a lawsuit in your favour and you will be receiving semi-annual payments of $25,000 over the next ten years. The first payment will occur six months from today. You plan on investing these payments and you expect to earn a return of 6% p.a. with the returns compounded monthly. The present value of this investment is closest to:
a) $329,520
b) $368,004
c) $370,642
d) $371,937